Tuesday

Apr 10, 2018 at 7:48 PMApr 10, 2018 at 7:48 PM

Acting Treasurer Elizabeth Maher Muoio told the budget panel that those tax increases were needed, not only to help pay for spending increases, such as Gov. Phil Murphy’s proposed $283 million increase in school funding and a $242 million boost in state funding for NJ Transit, but also to build up the state’s surplus to guard against future recessions.

TRENTON — Gov. Phil Murphy’s acting treasurer warned state lawmakers that the administration’s proposed tax increases are required to fund needed investments in education and infrastructure but also to keep the state’s finances in balance during the upcoming fiscal year.

The plan calls for some $1.56 billion in tax increases, including a so-called “millionaires tax” that would raise the state’s top income tax rate to 10.75 percent for earnings over $1 million and an increase in the state’s sales tax to 7 percent from the current 6.625 percent levy.

Maher Muoio told the budget panel that those tax increases were needed, not only to help pay for spending increases, such as Murphy’s proposed $283 million increase in school funding and a $242 million boost in state funding for NJ Transit, but also to build up the state’s surplus to guard against future recessions.

She also told the panel that even a so-called a “status quo” budget that includes no new revenue sources or major spending increases would likely result in a year-end deficit.

“In this new budget, if we were to propose no new revenues, no new spending, and back out all legislative adds from June of 2017, we would still have a deficit in FY19,” she said. “This is not only unsustainable, it’s unacceptable, and the governor is proposing a series of new revenue and budget initiatives to get our fiscal house in order.”

The treasurer’s testimony was part of the ongoing legislative hearings on Murphy’s proposed spending plan. Earlier in the day, the panel heard from budget and finance officials from the nonpartisan state Office of Legislative Services about the status of revenues and tax collections in the current 2018 fiscal year, which ends June 30, and the office’s projections for the upcoming 2019 fiscal year.

OLS officials said that the revenues are largely on track for the current fiscal year but warned that Murphy’s projected revenues from the state’s corporate income tax in 2019 were about $200 million above OLS’s projection.

OLS budget analyst David Drescher noted the volatility of both income tax and corporate business tax collections due to reactions to both the federal tax reform and Murphy’s well-publicized campaign promise to raise taxes on the state’s wealthiest residents. He said both factors could contribute to a potential “April surprise” in tax collections this month, which would impact government spending for the remainder of the current fiscal year and planning for the upcoming one.

“This year’s there some much bigger variables at play,” Drescher told the panel. “There may be a big swing (in tax collections). Then again, there may not be.”

Senate Budget chairman Paul Sarlo, D-36th of Wood-Ridge, said the uncertainty was one reason lawmakers should hold off before considering tax hikes.

“Before the Legislature can even consider tax increases, we really need to know what those April collections will be,” he said, adding that he was interested in how much of Murphy’s $1.5 billion in tax increases were needed to fund new programs and spending and how much was needed to address financial pressures, such as the state’s rising pension payment and health care expenses.

Other lawmakers questioned whether Murphy’s promises to continue ramping up funding for public education and other initiatives such as tuition-free college would require additional tax hikes.

“In Trenton, promises are easy to make, it’s payments that are hard,” said Sen. Steve Oroho, R-24th of Franklin.

Maher Muoio responded that the administration would look at its tax structure each year but that the intent is for state investments to help spur the economy and grow revenues at a faster pace.

“We’re hoping with these investments we’re going to grow our economy and be stronger moving forward,” she said. “Not investing has not worked.”

Sen. Declan O’Scanlon, R-13th of Little Silver, said he is concerned that Murphy’s proposed initiatives will require “massive tax increases” in the future and prompt the state’s wealthiest residents to flee to more tax-friendly states.

“You can squeeze the golden goose to make it lay eggs faster,” he said. “But at some point, you either crush the goose or you piss it off enough that it flies to Florida.”

Senators also asked some pointed questions about Murphy’s proposed division of school funding. While Murphy’s plan calls for a large increase in funding, officials from many of the state’s most underfunded school districts have complained that their districts are due to receive only nominal increases despite years of underfunding, while others continue to receive more state money than what the state’s funding formula prescribes.

Sen. Sam Thompson, R-12th of Old Bridge, cited the Chesterfield School District in Burlington County, which is due to receive only $41,000 in additional state aid next year under Murphy’s proposed state aid division.

“This does not in any way start to accomplish what the governor is trying to accomplish here,” Thompson said.

Maher Muoio said school aid was divided strictly according to the state funding formula law but that Murphy is open to making changes.

"The governor shares the concerns about what is planned,” she said.

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